The Spray Can King: How A Turnaround Expert Is Piecing Together An Aerosol Empire

Starco's Ross Sklar: "I started out buying turnarounds because that is all I could afford."

During the recession, Starco Group’s Ross Sklar found that his small business making chemicals and aerosols was struggling. So he did what any good value investor would do during a downturn: He looked for something to buy. He opened talks with one of his largest contract manufacturers, Four Star Chemical, which had a highly valuable plant in Vernon, California, south of Los Angeles, and structured a deal to acquire it at a pre-determined price only after he’d turned it around.

“I started out buying turnarounds because that is all I could afford,” he says. “Today, I can afford to buy really successful companies, but I still prefer turnarounds. You get so much more return on capital if you know what you are doing.”

Sklar, 42, has followed an old playbook for rolling up companies, fixing them up operationally and financially, and combining them together for economies of scale to create something bigger than the parts. Since 2005, he’s built Santa Monica-based Starco Group into one of the largest private-label aerosol manufacturers and an upstart maker of branded products, including a new line of healthier household cleaners called Breathe that relies on air rather than gas for its aerosol spray, through a series of acquisitions. All told, he’s bought 14 companies since 2005, with half dozen more deals in the works. Starco expects revenue to surpass $100 million this year and, with a little help from those pending deals, $300 million by 2020. “I want to be the most diversified aerosol player in North America,” he says.

That’s a lofty goal. Aerosol manufacturing is a giant, fragmented business – $68 billion worldwide, according to Grand View Research – and Starco is a blip of that total. Consumer products giants like P&G, SC Johnson and RPM International’s Rust-Oleum make a variety of branded aerosol products, while KIK Custom Products competes with Starco on the private-label side. Still, as the sole shareholder of Starco Group, which includes all the manufacturing operations – five U.S. plants, two warehouses and around 200 workers – he’s built something substantial with products that span paints and coatings, sunscreen and athlete’s foot sprays, cooking oils and popcorn butter. A second publicly traded entity, Starco Brands, holds all the intellectual property of the group’s branded business, such as Breathe, the first aerosols to be certified by the EPA’s Safer Choice program, and a new spray-on sunscreen brand called Honu, slated to debut at Walmart in May.

Sklar, a native of Calgary, graduated from the University of Manitoba in 1997 with a degree in political science, and like many in that region got into oil and gas. He started a small anti-corrosion products and industrial coatings company, SEI Chemical, during his third year of college, gaining a toehold in the industry. His big break came when he landed a contract to supply anti-graffiti coatings to the bridges, underpasses and overpasses in the Alameda Corridor around Los Angeles. In 2003, he relocated to southern California, and began to put the new company together piece by piece.

Sklar recalls negotiating for his first acquisition, BetterBilt Chemicals, a maker of drain openers, in 2005. The owner wanted to sell, but the company’s sales were down and its books, he says, were a mess. “I literally went through this man’s check registry for two years, and I rebuilt his entire financials so I had clean books,” he says. Then, through a friend, he lined up a six-figure SBA loan, negotiating a purchase price based on the amount he could borrow. He paid pennies on the dollar, he says, then repackaged the product and gained distribution at Ace Hardware, turning its best-selling product, Kleen-Out, into the top professional drain opener.

In 2008, with the economy in recession and many businesses struggling, Sklar wanted to take advantage of the downturn to buy on the cheap. “My business was off about 20%, but I knew if I was feeling the heat there were guys dying out there. I didn’t want that time to pass without doing a deal,” he says.